From 1st January 2019 (until 31 December 2020), the Annual Investment Allowance (AIA) will be temporarily increased from £200,000 to £1,000,000 as announced by Chancellor Philip Hammond in the Budget.

The AIA has seen several changes since 2008 ranging from £25,000 all the way up to £500,000. Now however, with the limit about to be increased by 5 times, what does this mean for UK businesses?

Insight from a Financial Professional

We asked our Finance Director, Alan Cooper to help explain AIA and the impact of the imminent increase.

“The Annual Investment Allowance (AIA) provides businesses with 100% tax relief, in the year of purchase, for many business assets. Qualifying assets include plant and equipment, machines and tools, vans, lorries and diggers (although it does not apply to cars).

The AIA is currently £200,000, but will be increased significantly to £1,000,000 from 1st January 2019 for a 2 year period, giving businesses an attractive tax incentive to accelerate their capital investment decisions.

Businesses do not need to buy the assets outright, in most cases they can hire purchase the assets and receive the full allowance, which is where Liberty Leasing can help them.

This is a great opportunity for businesses to take advantage of the £1,000,000 allowance (£2,000,000 across the 2 year period) before it reverts back to a much lower level in January 2021.”

Alan Cooper, Finance Director, Liberty Leasing Limited

So who can claim AIA?

The allowance is open to many entities so long as the business activity meets one of the following criteria: trading; commercial property letting; office or employment; or leasing. The only business structures, which are not eligible for the AIA are mixed partnerships (that is, partnerships comprised of both individuals and companies) and trustees.

NB: Liberty Leasing Limited is not a tax adviser – please seek advice from your tax adviser or accountant who can provide impartial tax advice for your business on investment decisions and their tax implications